CANADA FX DEBT-C$ at near 3-week low on weak commodities

Reuters Staff

4 Min Read

* C$ falls 1.4 percent to C$1.0670 to the U.S. dollar

* Stock reversal, commodity drop drive currency lower

* Canadian bonds mostly weaker, but outperform U.S.

By Cameron French

TORONTO, Oct 26 (Reuters) - The Canadian dollar dropped to
its lowest level in almost three weeks on Monday as commodity
prices fell and investors fled risk, keeping a wary eye on the
Bank of Canada as they went.

North American stock markets reversed early gains as prices
for commodities such as oil and gold fell and risk aversion
increased, prompting investors to embrace the perceived safety
of the U.S. dollar.

"Canada's been strongly linked to not only commodity
markets but global risk," said Jack Spitz, managing director
of foreign exchange at National Bank Financial.

Oil fell more than 2 percent to below $79 a barrel on
concerns that a sluggish economic recovery will keep global
demand low, while gold dropped to a two-week low below $1,040
an ounce.

The Canadian dollar often follows the lead of oil and
metals prices due to the country's high degree of dependence on
resource exports.

Adding to the cautious tone, Bank of Canada Governor Mark
Carney reiterated a warning he gave last week that the Canadian
currency's rally towards parity with the greenback was a risk
to growth. [ID:nBAC002343]

The currency retreated after Carney's initial warning and
his suggestion that the bank might consider intervening in
markets to slow the currency's rise.

The Canadian dollar ended at C$1.0670 to the U.S. dollar,
or 93.72 U.S. cents, its lowest level since Oct. 6. That was
down from C$1.0519 to the U.S. dollar, or 95.07 U.S. cents, at
Friday's close.

"Call it short-covering, call it awareness and respect of
Governor Carney, but the Canadian dollar was due for a
corrective phase," Spitz said.

"I think this is somewhat healthy in as far as the currency
had been more or less in a linear movement (higher)."

BOND PRICES LOWER

Canadian bond prices retreated across the curve, but
particularly among longer-dated issues as they took their lead
from U.S. Treasuries.

Bonds slightly outperformed U.S. debt, which declined ahead
of a week that will see billions of dollars of new debt hit the
market.